There may come a time in the life cycle of your business where you or another member needs to sell or otherwise transfer their interest in a New Hampshire LLC. And although forming an LLC is usually easier and requires fewer formalities than a corporation, one drawback is that these kinds of transfers are a little more complicated.
A corporation’s ownership is vested in stock, which can be bought and sold. An LLC is composed of members with a vested membership interest in the company. Transferring LLC ownership interest usually requires the consent of all members, while in a corporation a stockholder can freely transfer their interest as long as the buyer is qualified.
So how can you transfer ownership interest in a New Hampshire LLC? Let’s take a closer look.
If you need to form your LLC first, see how our New Hampshire LLC formation service can help. But it doesn’t stop at formation, we have a wide range of formation and compliance tools and services to help you make your business a success.
Creating an Operating Agreement (OA) is a key element to the LLC formation process. The purpose of an Operating Agreement is to provide a comprehensive record of how the business is run. According to New Hampshire law, an Operating Agreement may be written, oral, or implied. This is the rule, but it’s easy to see why a written OA is preferable.
An Operating Agreement details the structure of your limited liability company and the rights and responsibilities of its members. Some topics to consider covering include:
Having these things in writing shortly after the formation of the LLC can save you a lot of hardship as the business grows. This is a legally binding agreement that supersedes state laws regarding LLC transfer of ownership. If you don’t have an Operating Agreement, consider using our Operating Agreement templates to help you draft an OA that fits your LLC’s needs.
In some states, an LLC transfer of ownership can result in the dissolution of the business. There are two ways to get around that. One is a partial transfer. This is when only some members are trying to transfer their interest. A full transfer is a complete sale of the limited liability company.
When one member of the LLC wants to leave, the remaining members can opt to buy out their interest in the business. Many LLCs include a “first right of refusal” provision in their Operating Agreement. This allows existing members to unanimously agree to buyout the exiting member rather than transferring the interest to a third party. If a transfer is preferred, all members must agree to transfer LLC ownership in New Hampshire to a third party. Unless otherwise stated in the OA, state law will apply. According to New Hampshire law, a third-party transferee will not automatically receive management rights as part of the LLC transfer of ownership.
A third-party buyer may opt to purchase the entire business or just the business assets. All members must agree to the sale and terms of the contract. This transfers the ownership interest of all members. Because of the complexity of buy/sell agreements, it is a good idea to seek legal counsel.
There are a number of other issues that may arise in the course of your LLC membership. You can’t predict them all, but here are a few you may want to consider.
When a member of an LLC dies, their interest is treated as part of the estate. The heirs receive the deceased’s right to distribution. However, they don’t receive management rights. In many cases, the remaining LLC members will opt to buy out the interest from the heirs.
LLC transfer of ownership isn’t always a seamless process. Even when a thorough Operating Agreement exists, there can be difficulties. Dissolving the existing limited liability company and reforming with new membership is a valid option. There are a lot of factors that go into this decision including the financial health of the business, member dynamics, and growth predictions. File Articles of Dissolution with the New Hampshire Secretary of State to avoid being charged annual fees.
Change in ownership can be noted on the next Annual Report. If the transfer of LLC ownership isn’t listed on the Annual Reports, you can submit the change in writing to the Secretary of State.
The key to successfully transfer LLC ownership in New Hampshire is to have a detailed and comprehensive Operating Agreement. Without clear procedural direction, there’s room for interpretation and conflict. ZenBusiness’s OA formation tool can help you make sure that all of your bases are covered.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
In New Hampshire, you can sell your rights to LLC distributions (profits), but management rights are not transferable.
Adding new membership interests to an LLC will dilute ownership for all members. But it can also have benefits such as adding an industry expert to your membership roster. In order to issue new membership interests, all existing members must agree to the expansion.
You can report full ownership changes to your limited liability company using Form 8822-B within 60 days of the change.
Someone with interest in an LLC may have only transferable interest without any management rights. If so, they are only entitled to the distribution of profits, and are not considered a member.